credit crisis

How the Credit Crisis has Changed Counterparty Risk Management

Thursday, February 27, 2020

In this article, David Kelly, Director of Credit Products at Quantifi, discusses how the credit crisis and regulatory responses have forced banks to update their counterparty risk management processes substantially. New regulations in the form of Basel III, the Dodd-Frank Act in the U.S. and European Market Infrastructure Regulation (EMIR) have dramatically increased capital requirements for counterparty credit risk. CVA desks have been developed in response to crisis-driven regulations for improved counterparty risk management. How do these centralized groups differ from traditional approaches to manage counterparty risk, and what types of data and analytical challenges do they face?

Interest Rate Models - OIS & CSA Discounting

Thursday, February 27, 2020

Prior to the credit crisis, interest rate modelling was generally well understood. The underlying fundamental principles had existed for over thirty years with steady evolutions in areas that were most relevant to options and complex products. Credit and liquidity were ignored as their effects were minimal. Pricing a single currency interest rate swap was straightforward. A single interest rate curve was calibrated to liquid market products and future cash flows were estimated and discounted using this single curve. There was little variation between implementations and results across the market were consistent.

Accounting for the Changes in Valuation

Thursday, February 27, 2020

In the aftermath of the credit crisis, credit spreads soared to unpredicted heights. Basis spreads between three-month Libor and six-month Libor, for example, went from fractions of a basis point (where they had been quoted for decades) to double digits in a matter of months. Practitioners had to revise valuation methodologies to reflect these changes in the market. The accounting profession is now recognizing that these new market practices have important accounting implications as well.

Hedging Implications of Fixed Coupon CDS

Thursday, February 27, 2020

It has been reported in several industry publications (e.g. CreditFlux, Reuters, Derivatives Week Online) that the CDS market is likely to switch to a fixed coupon basis with upfront points. This change will lead to some fundamental changes in the risk profiles of these contracts. Understanding the implications of a switch to upfront contracts is going to be important in adjusting hedging strategies going forward. This is particularly true for strategies involving these contracts as hedges for default risk. This Learning Curve article will explore some of the most basic changes that participants in the credit markets will need to keep in mind.

Overhaul of Interest Rate Modelling

Wednesday, February 26, 2020

There is compelling evidence that the market for interest rate products has moved to pricing on this basis, but not all market participants are at the stage where existing legacy valuation and risk legacy valuations are up to date. The changes required for existing systems are significant and present many challenges in an environment where efficient use of capital at the business line level is becoming increasingly important.

How Are Firms Managing Liquidity Risk?

Tuesday, August 29, 2017

In this blog post, Quantifi breaks down the results from its recent survey on managing liquidity. 108 delegates were surveyed to measure opinion on how their firms are dealing with liquidity and their approach to IT and operational challenges. The survey was conducted as part of a webinar co-hosted by Quantifi, OTC Partners & BlackRock on ‘Identifying Liquidity Risk for Financial Stability’. Read More

Data Quality and Integration the Biggest Challenge Faced by Firms for Managing Liquidity Risk

Tuesday, August 15, 2017

Quantifi, OTC Partners, a boutique consultancy firm and BlackRock, a global investment management firm hosted a webinar on ‘Identifying Liquidity Risk for Financial Stability’. The 108 delegates took part in a survey on their risk management practices and the IT/operational challenges associated with managing liquidity risk. read more

Identifying Liquidity Risk for Financial Stability

Wednesday, October 5, 2016

by Quantifi and OTC Partners

The global financial crisis highlighted the importance of liquidity in functioning financial markets. Pre-2008, market participants received easy access to readily available funding and were ill-prepared for events that transpired during the credit crisis. Failure to adequately assess and manage liquidity underpinned major market turmoil, triggering unprecedented liquidity events and the ultimate demise of Bear Stearns, Lehman Brothers and other financial institutions previously thought too big to fail.

OIS and CSA Discounting

Monday, January 25, 2016

by Quantifi

Prior to the credit crisis, interest rate modelling was generally well understood. Following the crisis, interest rate modelling has undergone nothing short of a revolution. This whitepaper covers the new generation of interest rate modelling based on overnight index swap (OIS) discounting and integrated Credit Valuation Adjustment (CVA) and how this new framework requires a rethink of derivative modelling from first principles and presents significant challenges for existing valuation, risk management, and margining systems.